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Wednesday, September 28, 2011

DryShips Inc (NASDAQ: DRYS) Q4 2011 Price Target

Recent price: 2.64$

P/E Ratio: 4.16

3 Months Target Price: 5$

Company Description

According to their SEC Filings, DryShips Inc. (DryShips) is a holding company. The Company is engaged in the ocean transportation services of drybulk cargoes and crude oil worldwide through the ownership and operation of drybulk carrier vessels and oil tankers and offshore drilling services through the ownership and operation of ultra-deepwater drilling units. As of April 12, 2011, the Company owned, through its subsidiaries, a fleet of 35 drybulk carriers comprised of seven Capesize, 26 Panamax and two Supramax vessels, which has a combined deadweight tonnage (dwt) of approximately 3.2 million dwt, and had contracts for two Panamax newbuilding drybulk carriers of 76,000 dwt. In May 2010, DryShips agreed to acquire a Panamax vessel, the MV Amalfi (ex Gemini S), which was delivered to the Company in August 2010, and agreed to sell one of its Panamax vessels, the MV Xanadu. In addition, it sold its Panamax vessel, the MV Primera. In August 2011, the Company acquired majority of OceanFreight Inc.

Confidence Margins

Strong resistance $7.11 (+135%)

Light resistance $4.95 (+31%)

Light support $2.52 (-5%)

Strong support $2.11 (-20%)

Recommendation

DryShips is a company that has it's stock subject to a lot of volatility. It however presents an impressive buying opportunity at current price, it is cheaper than on our last analysis. First, profitability is coming back to the company even if capital expenditures are rapidly increasing. The spin-off of the Ocean Rig subsidiary has partially materialized but it will greatly increase shareholder value while reducing the debt load of the holding company.

Entry strategy

For the cautious investor:

Buy the stock for 3$ or less.

For the risk-taking trader:

The January 2011 5$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 10$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 5$, or keep it until 7$ if you are more bullish in your own analysis.

For the risk-taking trader:

The contracts should be kept until the underlying reaches 5$. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.

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Disclaimer

I am not a licensed investment advisor, so please consult with an investment professional before you invest your money. This site is for educational use only - any opinion here should not be treated as an investment advice. We are not liable for any losses suffered by any party because of recommendations published on this blog. Past performance is not a guarantee of future performance. Unless your investments are FDIC insured, they may decline in value.